Development

From Copenhagen to Mexico

Following his participation in the UN Summit on Climate Change in Copenhagen (7-18 December 2009), the Secretary-General Angel Gurría said: “Though far from perfect, the Copenhagen Accord is a hard-fought political agreement. With most countries likely to sign, it is a breakthrough towards collective international action to limit global emissions and help build cleaner, more resilient economies”. Read the news release.

If radical action is not taken, greenhouse gas emissions are forecast to rise by around 70% between now and 2050 and continue to grow afterwards. This will raise world temperatures by at least 4°C from pre-industrial levels by the end of the century. The aim of the Copenhagen Summit is to put the world on a path to a low-carbon future in which global temperature rises stay below 2°C.

The devastation caused by a 4°C temperature rise is illustrated in this interactive map prepared by the UK Government’s Meteorological Office.

The OECD argues for a range of policies with an emphasis on putting a price on carbon emissions, e.g. through carbon taxes and a “cap and trade” system in which companies can buy and sell the right to emit a certain amount of greenhouse gases. If a global carbon market is developed over the next decade, it would only cost one-tenth of a percent of average world GDP growth between 2012 and 2050 to keep greenhouse gas concentrations at safe levels. Carbon pricing would need to be complemented by energy efficiency regulations and standards and increased investment in research and development.

Removing environmentally-harmful subsidies to energy consumption and production is an important first step in establishing a price for carbon emissions. Joint OECD-International Energy Agency analysis shows that removing fossil fuel subsidies in emerging economies and developping countries could reduce global greenhouse gas emissions by 10% by 2050.

Some countries fear that by imposing lower emission limits, their domestic industries will lose competitiveness while greenhouse gases rise in other countries (“carbon leakage”). Some want to impose border carbon taxes on imports from countries that do not adopt stringent greenhouse gas targets. OECD analysis, however, suggests that border taxes do little to address competitiveness impacts, are expensive for both the country implementing them and their trading partners, and could lead to trade friction.

Instead, we need to level the playing field by broadening participation in a climate agreement to include as many countries and industries as possible. OECD work on harmonising the tax treatment of tradable permits will create a fairer system among countries using “cap and trade” schemes.

Making economic growth greener will be central to this engagement. OECD work on the economics of climate change and green growth is showing how innovation and investment in renewable energy and improved efficiency can be a new source of economic dynamism.

The carbon market should be an essential source of financing climate change mitigation. The OECD estimates that if all industrialised countries were to use taxes or auctioned permits to cut CO2 emissions by 50% in 2050, the revenues could reach 2.5% of their GDP by 2020. The tax revenue could help boost economic growth or support climate change mitigation in developing countries.

OECD work has found that the costs of applying carbon taxes varies widely across developed countries. For Australia, Canada and the US, for instance, one tonne of CO2 would have to be priced at 50 US dollars at least if emissions are to return to 1990 levels by 2020.

Poor countries will be hit the hardest by climate change through the effect of droughts, severe weather and rising sea-level. The OECD is providing guidelines for integrating mitigation and adaptation to climate change into development policy.

Cities can take the lead in planning for climate change. OECD work on “green cities” shows that they are often centres of innovation and can advance clean energy systems, sustainable transport and waste management to reduce greenhouse gases.